Answered: Find the yield to maturity of a $1,000…

Find the yield to maturity of a $1,000 par value bond with a coupon rate of 9% semi-annually and maturity of 6 years. The bond's price is $980.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 7P: Bond Valuation with Semiannual Payments Renfro Rentals has issued bonds that have a 10% coupon rate,...

See similar textbooks

Related questions

Q: a) What is the yield to maturity? b) What is the yield to call?

A: YTM means total return that buyer will receive between time period the bond is purchased and the…

Q: Perform a financial analysis for a project. Assume that the projected costs and benefits for this…

A: The meaning of ROI is return on investment.. It can be calculated by dividing the profit earned on…

Q: A town would like to build a new recreation center in 16 years. They predict they will need $18…

A: An annuity is a phenomenon of where a financial goal is reached by investing a small amount on a…

Q: a. The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equity portfolio. Note: Round…

A: The relative worth of two currencies, or the amount of one currency that may be exchanged for one…

Q: Consider the case of Kuhn Co. Kuhn Co. is considering a new project that will require an initial…

A: Cost of Debt = RATE(nper = 15, pmt = 110, pv = -1555.38, fv = 1000, 0) = 5.48%Cost of Preferred…

Q: Van Buren Resources Inc. is considering borrowing $120,000 for 170 days from its bank. Van Buren…

A: Financing Costs:Financing costs refer to the interest cost a company would incur for borrowing…

Q: Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets…

A: The DuPont analysis refers to the breakdown of the return on equity into its factors to measure the…

Q: Beth buys a home for $314,561 and puts 20% down. How much is the monthly payment on her thirty-year…

A: Loan amortization refers to the systematic repayment of principal and interest amount spread over…

Q: A 30-year maturity bond with face value of $1,000 makes semiannual coupon payments and has a coupon…

A: Bonds are debt instruments issued by companies. The issuing company will pay periodic interest or…

Q: What annual rate of return is implied on a $2,500 loan taken next year when $6,000 must be repaid in…

A: To find the annual rate of return implied on a $2,500 loan taken next year when $6,000 must be…

Q: Due to COVID-19, the productivity of wheat declines in Australia in the early season of 2021 (August…

A: Hedging strategies are commonly used in various industries, including agriculture, finance, and…

Q: You are purchasing a bond that currently sold for $1,085.36. it has the time-to-maturity of 12 years…

A: A bond is a kind of debt security issued by the government and private companies to the public for…

Q: You have decided to become a homeowner with the purchase of a condominium in a newly redeveloped…

A: When the borrower borrows a loan from the lender, he has to pay a rate of interest on the borrowed…

Q: The common stock of the C.A.L.L. Corporation has been trading in a narrow range around $85 per share…

A: Put-Call Parity is a financial principle stating that the price of a European call option and a…

Q: A loan officer at your bank approved your application for a two million pesos business loan. You…

A: Loan time period, also known as loan tenure or loan term, refers to the specified duration over…

Q: How much did he invest at each rate?

A: Let the amount deposited earnings 3% interest be W. The amount earnings 4% interest = $12,000-W

Q: Opose a stock had an initial price of $74 per share, paid à dividend $1.65 share during the year,…

A: Rate of return is the profit earned above the investment and it is the sum of dividend yield and…

Q: The table on the right shows closing costs for a purchase of a $170,000 house requiring a 20% down…

A: Closing costs are upfront costs incurred while buying a house and getting a mortgage.This is cash…

Q: A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 23%,…

A: Formula for correlation coefficient is:Correlation coefficient = Cov(A, B)/SD of A*SD of BCov(A,B) =…

Q: You are going to value Lauryn's Doll Co. using the FCF model. After consulting various sources, you…

A: Free Cash Flow:It refers to the amount of money remaining for the firm after paying all the…

Q: Two stocks (A & B) have a positive correlation. Which of the following is most likely to be true? O…

A: Two stocks are positively correlated when they move in the same direction i.e. if price of stock A…

Q: The appropriate discount rate for the following cash flows is an 8 percent APR compounded quarterly.…

A: The PV of an investment refers to the combined worth of the cash flows of the investment assuming…

Q: couple wishes to borrow money using the equity in their home for collateral. A loan company will…

A: Loans are paid by the equal and fixed monthly payments and these monthly payments carry the payment…

Q: Yesterday, at the market close, the stock of Kevin Spellman, Inc. was trading at $200 per share, and…

A: Solution:-Stock split means the splitting of existing number of shares to multiple parts, i.e. each…

Q: An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of…

A: A financial instrument that has a fixed income and also helps a company to raise funds for business…

Q: XYZ, Inc. is considering purchasing Widget, Inc. XYZ would finance the purchase using its current…

A: Cost of equity = Risk Free Rate of Return + Beta × (Market Rate of Return – Risk Free Rate of…

Q: You are considering two payment options on a $500,000 20-year mortgage having an interest rate of…

A: The loan amount is $500,000.The period is 20 years.The annual rate of interest is 2.8%.The…

Q: You took out a fully amortizing 30 year fixed rate $300,000.00 mortgage with 6% contract interest…

A: A mortgage refers to a covered loan that is borrowed for purchasing a property. The property itself…

Q: The New company issuance of $50 million of common stock in an initial public offering is a primary…

A: A primary market is the market in which a company offers its securities for the very first time. In…

Q: If $100,000 is invested at 5.0% annual interest, compounding monthly, what is the balance after 3…

A: The concept of time value of money will be used here. As per the concept of time value of money any…

Q: Pete opens a simple intrest savings account that earns 5% annual interst with an intial deposit of…

A: Simple Interest Rate = r = 5%Initial Deposit = d = $3500Time = t = 18 / 12 = 1.5 Years

Q: nd the average daily balance for the credit card with the following ansactions. Assume one month…

A: The average balance, also known as the average daily balance, is a financial term that refers to the…

Q: Craig's Cake Company has an outstanding issue of 13-year convertible bonds with a $800 par value.…

A: Given data:-Face value = $800Maturity = 13Annual coupon = 12%Convertible into shares = 70Interest…

Q: Market Equilibrium and Common Stock Growth The required return on the market is 11.5% and the risk…

A: Here,Required Return of Market11.50%Risk Free Rate5.50%Beta 0.9Market Risk aversion6.00%Expected…

Q: A scholarship provider has $525000 which she will invest today to fund a scholarship forever. She…

A: An "annual payment" refers to a recurring sum of money that is made or received on an annual basis,…

Q: Your broker has developed a list of firms, their betas, and the return he expects the stock to yield…

A: Capital Asset Pricing Model (CAPM) is an alternative model to find out the cost of equity or the…

Q: Fast Exports Inc. has a beta of 1.2, market risk-premium is 7%, and Treasury bonds are currently…

A: Here,Beta is 1.2Market Risk Premium is 7%Treasury Bond (Risk Free Rate) is 5%

Q: 1. Suppose the 1-year risk-free rate of return in the USA is 4.5%. The current exchange rate is 1…

A: The no-arbitrage opportunity between exchanging currency and investment through interest rate and…

Q: An investor is considering the purchase of an existing suburban office building approximately five…

A: As per the given information:To determine:The estimated value for this property.The estimated…

Q: You want to have $10,500 saved 8 years from now. How much less can you deposit today to reach this…

A: A = whereA = Amount to be deposited todayFV = future valuer = interest raten = time period

Q: St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage…

A: GivenCost of machine is $181,500Estimated life of machine is 8 yearscorporate tax is 25%Cost of…

Q: Mark Weinstein has been working on an advanced technology in laser eye surgery. His technology will…

A: First Annual Cash Flow = cf1 = $176,000Time for first payment = 2Growth Rate = g = 3.6%

Q: Which is the better return for the investor on an after-tax basis? Please answer either corporate or…

A: Corporate bonds are taxable but Municipal bonds are not.Corporate bonds are currently yielding…

Q: Your task is to find the value of the stock given the following forecasts about the dividends: The…

A: Terminal value is computed as follows:-Terminal value = whereD = dividendg = growth ratek = Required…

Q: Builtrite is considering purchasing a new machine that would cost $60,000 and the machine would be…

A: The final or the last cash flow of the project which includes the salvage value of the equipment is…

Q: A firm has sales of $4,790, costs of $2,590, interest paid of $174, and depreciation of $483. The…

A: Calculating the Earnings before Interest and taxes ( EBIT )Earnings before Interest and taxes…

Q: Expected Return of Common Stock Wooster Inc. has common stock with a market price of $120 per share.…

A: The concept of dividend discount model will be used and applied here. The dividend discount model…

Q: How much will Kingston Technologies have to pay each year in 9.00 equal payments, starting 2 years…

A: In the Given case:Since the payments start 2 years from now, we need to calculate the value of loan…

Q: Jacobi Supply Company recently ran into certain financial difficulties that have resulted in the…

A: Each creditor will be paid 48cent on the dollar immediately, and the debts will be considered fully…

Q: Your client has a risk aversion of A-3 when applied to return on wealth over a 1 year horizon. She…

A: Here, Expected ReturnStandard DeviationRisk Premium of S&P 5008.00%20%Risk Premium of Hedge…

Question

Find the yield to maturity of a $1,000 par value bond with a coupon rate of 9% semi-annually and maturity of 6 years. The bond's price is $980.

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Define of YTM

VIEW

Step 2: Calculation of YTM

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may be called in 4 years at a call price of 1,060. The bond sells for 1,100. (Assume that the bond has just been issued.) a. What is the bonds yield to maturity? b. What is the bonds current yield? c. What is the bonds capital gain or loss yield? d. What is the bonds yield to call?
Current Yield with Semiannual Payments A bond that matures in 7 years sells for $1,020. The bond has a face value of $1,000 and a yield to maturity of 10.5883%. The bond pays coupons semiannually. What is the bond’s current yield?
Bond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of 1,000, and has a yield to maturity equal to 9.6%. One bond, Bond C, pays an annual coupon of 10%; the other bond, Bond Z, is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 9.6% over the next 4 years, what will be the price of each of the bonds at the following time periods? Fill in the following table:
Current Yield for Annual Payments Heath Food Corporations bonds have 7 years remaining to maturity. The bonds have a face value of 1,000 and a yield to maturity of 8%. They pay interest annually and have a 9% coupon rate. What is their current yield?
Bond Valuation with Semiannual Payments Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?
Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?